Provision for Income Taxes

3 Months Ended

Mar. 31, 2013

Provision for Income Taxes

Provision for Income Taxes

10. Provision for Income Taxes

The Company accounts for income taxes using the asset and liability approach by recognizing deferred tax assets and liabilities for the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. The Company records a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. In addition, the Company accounts for uncertain tax positions that have reached a minimum recognition threshold.

The income tax provision for the three months ended March 31, 2013 and 2012 was $2.6 million and $11.8 million, respectively, representing effective tax rates of 31.3% and 43.9%, respectively. The Company’s effective tax rate may change over time as the amount or mix of income and taxes changes amongst the jurisdictions in which the Company is subject to tax.

As of March 31, 2013 and December 31, 2012, the Company has unrecognized tax benefits of approximately $35.8 million and $42.1 million, respectively, of which $17.3 million and $23.6 million, if recognized, would result in a reduction of the Company’s effective tax rate. The Company recognizes penalties and interest related to unrecognized tax benefits in the provision for income taxes. As of March 31, 2013 and December 31, 2012, approximately $3.3 million and $3.7 million, respectively, of accrued interest and penalties related to uncertain tax positions was included in other current liabilities on the unaudited condensed consolidated balance sheets. Penalties and interest related to unrecognized tax benefits in the provision for income taxes of $0.3 million and $0.1 million were recorded during the three months ended March 31, 2013 and 2012, respectively.

The Company files tax returns in the United States, which include federal, state and local jurisdictions, and many foreign jurisdictions with varying statutes of limitations. The Company considers Germany, the United States and Switzerland to be its significant tax jurisdictions.  The tax years 2009 to 2012 are open tax years in these significant jurisdictions.  The Company has been contacted by the United States Internal Revenue Service and a tax audit commenced in 2012 for the tax year 2010.  It is expected that this audit will be completed in the first quarter of 2014.